Online initiative boosts Blockbuster
EmptyBlockbuster Inc. might have a new hit on its hands, some on Wall Street believe.
Nonetheless, some recent upward momentum in the stock has so far failed to catapult it beyond its 52-week high. The stock has traded at a low of $3.19 and high of $5.13 in that period.
Ahead of its latest quarterly earnings report on Thursday, the video rental giant rejiggered its Blockbuster Online product, which competes with Netflix Inc., to create Blockbuster Total Access.
Subscribers to Total Access will be able to return the movies they get in the mail to any one of 5,000 Blockbuster stores. When they do, they get a free movie at the store, plus their next movie in their online queue is mailed to them. This way, a subscriber might get twice as many movies each month for the same price.
"While the move could pressure inventory and online costs, we believe it could give Blockbuster an edge over Netflix while promoting increased in-store foot traffic," Citigroup analyst Tony Wible says. "However, we still believe the online market is large enough for both Netflix and Blockbuster to coexist and would reiterate that Netflix's business is better and on a much stronger footing than Blockbuster Online."
Wible also notes that Blockbuster only recently began testing Total Access in limited markets, then launched it nationally shortly thereafter, indicating that Blockbuster quickly saw benefits to the new initiative.
"This move will likely help Blockbuster increase in-store cross-selling efforts while providing a distribution edge over Netflix, which can only ship movies via mail," he says.
Wible recommends shares of both companies and has a $5.50 target price on Blockbuster and a $30 target on Netflix shares. They closed Monday at $4.42 and $27.26, respectively.
Total Access also lets employees at stores instantly sign up new subscribers. While that should help drive more subscriptions, it is "not enough to alter the competitive environment for Netflix," Jefferies and Co. analyst Youssef Squali says. "We continue to like Netflix, which we believe is benefiting from a better online brand, excellent execution and the lack of traction from video on demand and digital downloading services so far." Squali has a $32 price target on shares of Netflix.
The online DVD rental pioneer had 5.7 million subscribers as of last count, and Blockbuster reported 1.5 million online users as of Sept. 30, with a target of 2 million by year's end.